Economist warns of the risks of cryptocurrency in light of Einstein Exchange shut down

Erin Laforet / November 5, 2019

Cryptocurrency is a form of digital currency that has no regulation in Canada.
(Adobe Stock)

Cryptocurrency, a tradable digital asset, was originally meant to be a way to get around the government’s control of currency. However, Vancouverites are rethinking where they invest their money in light of the second Vancouver crypto company shut down in the past 6 months.

Cryptoasset trading platform Einstein Exchange is under investigation from the B.C. Securities Commission after receiving many complaints from customers not being able to access their accounts. Einstein Exchange’s assets have been seized by an interim receiver appointed last week and owes customers over $16 million. The RCMP is also investigating potential money laundering. Six months prior, QuadrigoCX, formally one of Canada’s biggest cryptocurrency exchanges, was shut down over an FBI investigation into $214.6 million dollars owed to its clients.

Cryptocurrency exchanges, like Bitcoin, Litecoin and Ethereum, are virtually unregulated in Canada. Cryptocurrency isn’t considered a legal tender by the government of Canada and is categorized as a commodity for trading. This means that if you invest your money into cryptocurrency, you have no guarantee by the Government of Canada that you will get your money back. Kevin Wainwright, adjunct professor at SFU with a PHD in economics, says

“The big issue around cryptocurrency is that people don’t realize that if you buy cryptocurrency you are at two risks; one is the exchange you are trading on -cause it’s a business that can go broke- and two, that it’s not protected or backed up by the government of Canada.”

Here are some of the other risks associated with investing your money in cryptocurrency:

(Cole Sorenson / BCIT News)

While there are benefits to investing in cryptocurrency, such as the convenience of transferring funds, the anonymity and ultimately, the chance to gain significant profit, Wainwright says for the most part, the risks out weigh the rewards.

“It’s extremely high risk, it’s no different than investing in a company that’s mining gold in South America; you got no protection. Now if they find gold and are a good company you might get rich. If not, you may lose everything.”

Ultimately, when it comes to trading or investing in cryptocurrencies, it’s buyer beware.